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*This disposition is not appropriate for publication. 

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value. 

See 9th Cir. BAP Rule 8013-1.

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. AZ-12-1281-AhJuTa

)

ANDREW FRANCIS and ) Bk. No. 11-08988

ANNE FRANCES FRANCIS, )

) Adv. No. 11-01245

Debtors. )

______________________________)

)

ANDREW FRANCIS; )

ANNE FRANCES FRANCIS, )

)

Appellants, )

)

v. ) MEMORANDUM*

)

JAMES MCLAUGHLIN and JIM )

NYGREN, as Trustees of the )

UFCW Employers Arizona Health )

& Welfare Trust; CONSTANTINO )

FLORES, Trustee; UNITED STATES)

TRUSTEE, )

)

Appellees. )

______________________________)

Argued and Submitted on June 21, 2013 at

Phoenix, Arizona 

Filed - July 12, 2013

Appeal from the United States Bankruptcy Court

for the District of Arizona

Honorable Randolph J. Haines, Chief Bankruptcy Judge, Presiding ___________________________________

Appearances: Harold E. Campbell, III of Campbell & Coombs

argued for Appellants Andrew Francis and Anne

Frances Francis; Paul E. Steen of Ryan Rapp &

Underwood, P.L.C. argued for Appellees James

McLaughlin and Jim Nygren, as Trustees of the

FILED

JUL 12 2013

SUSAN M SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT
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**Hon. Alan M. Ahart, United States Bankruptcy Judge for the

Central District of California, sitting by designation.

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United Food and Commercial Workers Employers

Arizona Health and Welfare Trust.

___________________________________

Before: AHART,** JURY, and TAYLOR, Bankruptcy Judges.

INTRODUCTION

Debtors Andrew and Anne Francis (“Francises”) have appealed

a bankruptcy court summary judgment finding a debt

nondischargeable in favor of James McLaughlin and Jim Nygren, as

Trustees of the United Food and Commercial Workers and Employers

Arizona Health and Welfare Trust (“United”). The Francises

contend the bankruptcy court erred by giving preclusive effect to

an Arizona default judgment. We disagree as to Andrew but agree

as to Anne. Therefore we AFFIRM in part and VACATE and REMAND in

part. 

FACTS

Andrew Francis is the owner and operator of Medical

Management Strategies, LLCP (“MMS”), a medical consulting

business. In 2004, based on its alleged right to collect on a

medical provider’s accounts receivable, MMS submitted claims for

payment for treatments. United is the insurer of the patients

who purportedly received such treatments. Throughout 2005, based

on the submitted claims, United issued checks totaling

$114,085.54 to Dr. Gwen Ladha, the listed treating physician. 

The checks were indorsed and cashed by “Andrew Francis dba Ladha,

M.D.” 
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1We exercise our discretion to take judicial notice of

documents filed in the underlying state court case. See

Trigueros v. Adams,658 F.3d 983, 987 (9th Cir. 2011) (“We retain

discretion to take judicial notice of documents ‘not subject to

reasonable dispute.’ Fed. R. Evid. 201(b). In particular, we ‘may

take notice of proceedings in other courts, both within and

without the federal judicial system, if those proceedings have a

direct relation to matters at issue.’”) (citations omitted).

 - 3 -

After investigation, United came to believe the submitted

claims were false and demanded reimbursement from Andrew. On

December 18, 2006 United filed suit against MMS and the Francises

in the Superior Court of Arizona, Maricopa County (“State Court

Action”). The first amended state court complaint (“State Court

Complaint”) asserted causes of action for conversion, common law

fraud, negligent misrepresentation, and restitution.1

The Francises filed numerous pleadings in the State Court

Action. These include, but are not limited to, a motion to

dismiss on January 17, 2007, an answer on July 20, 2007, a motion

to compel discovery on March 29, 2010, a motion for sanctions on

April 27, 2010, a motion for summary judgment on May 5, 2010, a

response to plaintiff’s motion for summary judgment on July 29,

2010, and a motion for judgment on the pleadings on October 5,

2010. A minute entry dated August 13, 2010 indicates the state

court denied both United’s and the Francises’ cross-motions for

summary judgment, concluding questions of fact existed on both

the fraud and conversion claims. Trial was scheduled to begin on

October 18, 2010, and the parties had submitted pretrial

statements and jury instructions. 

In addition to the civil proceeding, criminal charges had

been brought and subsequently dismissed. On the eve of the civil

trial, the Francises decided to strike their answer and allow
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2

Unless specified otherwise, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C §§ 101-1532, and

all “Rule” references are to the Federal Rules of Bankruptcy

Procedure, Rules 1001-9037. All “FRCP” references are to the

Federal Rules of Civil Procedure.

 - 4 -

default judgment to be entered against them. On the advice of

criminal counsel, Mr. Francis determined he did not want to

testify under oath, believing it could result in the re-filing of

criminal charges.

A damages hearing was held in December 2010, after which the

state court drafted a minute entry, dated February 15, 2011,

denying United’s request for punitive damages. The state court

then entered an amended default judgment (“State Court Judgment”)

against the Francises on March 16, 2011. The State Court

Judgment set forth the Superior Court’s findings and awarded

$114,085.54 on the fraud and conversion claims, interest of

$66,138.33, and costs of $1,893.70. The State Court Judgment

made findings of fraud and conversion against only Andrew, but

entered judgment against both Andrew and Anne.

On April 4, 2011, the Francises filed a chapter 72 voluntary

petition in the United States Bankruptcy Court for the District

of Arizona. On July 11, 2011, United filed a complaint to

determine dischargeability of a debt (“Nondischargeability

Complaint”). The Nondischargeability Complaint alleged causes of

action under 11 U.S.C. §§ 523(a)(2)(A), (a)(2)(B), and (a)(19)

and sought to except the State Court Judgment from discharge. 

Debtors filed an answer on August 25, 2011. On January 16, 2012,

United filed a motion for summary judgment, arguing it was

entitled to judgment as a matter of law based on the State Court
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3The Nondischargeability Complaint alleged causes of action

under 11 U.S.C. §§ 523(a)(2)(A), (a)(2)(B), and (a)(19). The

Bankruptcy Court Judgment found the debt to be nondischargeable

under 11 U.S.C. § 523(a)(2)(A). On July 27, 2012, this Panel

(continued...)

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Judgment and res judicata. On February 17, 2012, the Francises

filed an opposition to the motion for summary judgment. At the

March 5, 2012 status hearing, the bankruptcy court advised United

to address issue preclusion in its reply, correctly explaining

that res judicata, also known as claim preclusion, cannot apply

because state courts do not hear nondischargeability actions

under § 523(a)(2). United’s reply was filed on March 26, 2012.

On April 5, 2012, the bankruptcy court held a hearing on the

motion for summary judgment. The bankruptcy court determined the

State Court Judgment would be given preclusive effect and stated

in relevant part that “there was active participation by the

Defendant in litigating this case.” On April 10, 2012, the

bankruptcy court entered a minute entry order granting the motion

for summary judgment. On April 24, 2012, the Francises filed a

motion for reconsideration, which was denied by an order entered

on April 27, 2012. On May 10, 2012, the bankruptcy court entered

judgment (“Bankruptcy Court Judgment”) excepting the State Court

Judgment from discharge pursuant to § 523(a)(2)(A).

On May 23, 2012, the Francises timely filed a notice of

appeal to this Panel. 

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C. 

§§ 1334 and 157(b)(2)(I). We have jurisdiction under 28 U.S.C.

§ 158.3

 
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3(...continued)

issued a Clerk’s Order, stating that the Bankruptcy Court

Judgment appeared to be an interlocutory order because the

remaining causes of action were still pending. An appeal of an

interlocutory order requires leave of the Panel. See 28 U.S.C.

§ 158(a)(3) and Rule 8003. In response, on August 13, 2012, the

Francises filed a motion to amend, requesting the bankruptcy

court amend the Bankruptcy Court Judgment to include dismissal of

United’s claims under 11 U.S.C. §§ 523(a)(2)(B) and (a)(19). 

United did not object and the bankruptcy court entered an order

on September 12, 2012 dismissing the remaining causes of action.

 - 6 -

ISSUE

In granting summary judgment, did the bankruptcy court err

in finding that the State Court Judgment satisfied the elements

of issue preclusion under Arizona law?

STANDARDS OF REVIEW

A grant of a motion for summary judgment is reviewed de

novo. Younie v. Gonya (In re Younie), 211 B.R. 367, 372 (9th

Cir. BAP 1997) (citing Gayden v. Nourbakhsh (In re Nourbakhsh),

67 F.3d 798, 800 (9th Cir. 1995)). The evidence must be reviewed

in the light most favorable to the nonmoving party to determine

if there are any genuine issues of material fact and whether the

bankruptcy court correctly applied the substantive law. Fichman

v. Media Center, 512 F.3d 1157, 1159 (9th Cir. 2008).

Mixed questions of law and fact are reviewed de novo. 

Carrillo v. Su (In re Su), 290 F.3d 1140, 1142 (9th Cir. 2002). 

Whether issue preclusion is available is a mixed question of law

and fact. Stephens v. Bigelow (In re Bigelow), 271 B.R. 178, 183

(9th Cir. BAP 2001). 
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4The preferred terminology is “issue preclusion” rather than

“collateral estoppel” and “claim preclusion” rather than “res

judicata.” Syverson v. Int’l Bus. Machs. Corp., 472 F.3d 1072,

1078 n.8 (9th Cir. 2007).

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DISCUSSION

A. Standard for Summary Judgment

Summary judgment is appropriate when the facts presented

show there is no genuine issue as to any material fact and that

movant is entitled to judgment as a matter of law. FRCP 56(c),

made applicable to the bankruptcy court by Rule 7056. An issue

is “genuine” if the evidence is such that a reasonable jury could

return a verdict for the nonmoving party. Anderson v. Liberty

Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is “material”

only if it could affect the outcome of the suit. Id. At the

summary judgment stage, the judge’s function is not to weigh the

evidence and determine the truth of the matter, but to determine

whether there is a genuine issue for trial, or whether it is so

one-sided that one party must prevail as a matter of law. Id. at

243-244.

B. Standard for Issue Preclusion

The doctrine of issue preclusion, or collateral estoppel,

prohibits relitigation of issues that have been adjudicated in a

prior action.4 Child v. Foxboro Ranch Estates, LLC (In re

Child), 486 B.R. 168, 172 (9th Cir. BAP 2013) (citing Lopez v.

Emergency Serv. Restoration, Inc. (In re Lopez), 367 B.R. 99, 104

(9th Cir. BAP 2007)). The party asserting issue preclusion bears

the burden of proof as to all elements and must introduce a

sufficient record to reveal the controlling facts and the exact
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issues litigated. Child, 486 B.R. at 172 (citing Kelly v. Okoye

(In re Kelly), 182 B.R. 255, 258 (9th Cir. BAP 1995)).

The doctrine of issue preclusion applies in

nondischargeability proceedings. Grogan v. Garner, 498 U.S. 279,

284-85 n.11 (1991). Under 28 U.S.C. § 1738, the federal full

faith and credit statute, federal courts must give state court

judgments the same preclusive effect that those judgments would

receive from another court of the same state. Far Out

Productions, Inc. v. Oskar, 247 F.3d 986, 993 (9th Cir. 2001). 

Accordingly, Arizona law determines any preclusive effect of the

State Court Judgment. Nourbakhsh, 67 F.3d at 800.

In Arizona, there are four requirements for the application

of issue preclusion: (1) the same issue or fact was actually

litigated in a previous suit, (2) a final judgment was entered,

(3) the party against whom the doctrine is to be invoked had a

full opportunity to litigate the matter and actually did litigate

it, and (4) the issue or fact was essential to the prior

judgment. See Chaney Bldg. Co. v. City of Tucson, 716 P.2d 28,

30 (Ariz. 1986).

C. Application to the Instant Case

Same issue was litigated

The second count of United’s State Court Complaint alleged

common law fraud. In Arizona, an action for common law fraud

requires the concurrence of the following elements: a

representation, its falsity, its materiality, the speaker’s

knowledge of its falsity or ignorance of its truth, intent that

it should be acted upon by the person and in a manner reasonably

contemplated, the hearer’s ignorance of its falsity, his rightful
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reliance thereon, and his consequent injury. Nielson v.

Flashberg, 419 P.2d 514, 518 (Ariz. 1966). 

To except a debt from discharge under § 523(a)(2)(A) of the

Bankruptcy Code, a creditor must show: the debtor made

representations that at the time the debtor knew to be false, the

debtor made the representations with the intention and purpose of

deceiving the creditor, the creditor justifiably relied on the

representations, and the creditor sustained losses as a proximate

result. Turtle Rock Meadows Homeowners Ass’n v. Sylman

(In re Sylman), 234 F.3d 1081, 1085 (9th Cir. 2000) (citing

Am. Express Travel Related Servs. Co. v. Hashemi (In re Hashemi),

104 F.3d 1122, 1125 (9th Cir. 1996)). 

Because the elements to establish common law fraud under

Arizona law overlap with and mirror the elements for a

nondischargeability determination under § 523(a)(2)(A), the same

issues in the Nondischargeability Complaint were actually

litigated in the State Court Action. 

Final judgment

Issue preclusion does not apply to determinations that are

not final judgments. A judgment is final in Arizona if it is

sufficiently firm as to be accorded conclusive effect. Campbell

v. SZL Properties, Ltd., 62 P.3d 966, 969 (Ariz. App. Div. 1

2003) (citing Restatement (Second) of Judgments § 13) (1982)). 

There is nothing on the record that would indicate otherwise, and

it appears the parties would agree the State Court Judgment

constitutes a final judgment. 
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Opportunity to and actually litigated the matter

It is also clear that the Francises had the opportunity to

litigate in state court. The Francises participated in the State

Court Action for over four years. They filed multiple motions,

conducted discovery, and appear to have participated in numerous

status conferences. Moreover, the Francises’ request that their

answer be stricken immediately before the trial was the sole

reason default was entered. Accordingly, the Francises had, but

chose not to avail themselves of, the opportunity to litigate. 

The Francises argue that, because the State Court Judgment

resulted from a default, the issues were not actually litigated. 

We disagree with the characterization of the State Court Judgment

as a default. Although titled as such, we do not exalt form over

substance, and the context of the State Court Action makes clear

this was not a mere default, as it was litigated up until the

trial date. See Prudential Real Estate Affiliates, Inc. V. PPR

Realty, Inc., 204 F.3d 867, 880 (9th Cir. 2000) (“[T]he label

attached to a motion does not control its substance.”). Further,

while Chaney states that generally a default judgment does not

constitute actual litigation of any issues, there is authority

concluding that a default judgment may meet the actual litigation

requirement. In Kirkland v. Barnes (In re Kirkland), 2008 WL

8444824 (9th Cir. BAP 2008), this Panel upheld a bankruptcy

court’s decision to give preclusive effect to a default judgment

issued by an Arizona state court, noting it was appropriate to

look into a party’s reasons for not litigating. Id. at *9. The

Debtor in Kirkland participated in the state court proceedings,
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but committed discovery violations that led to state court

sanctions, including striking his answer and entering default. 

In Bell v. Bell (In re Bell), 2008 WL 2277875 (D. Ariz.

2008), the district court affirmed a bankruptcy court’s

application of issue preclusion to an Arizona state court

judgment issued after the debtors’ untimely response to a

creditor’s motion for summary judgment was not considered by the

court. Finding the debtors did not give up and merely accept

default, but instead pursued their case ineffectively, the

district court determined the issues to be actually litigated. 

See also Child, 486 B.R. 168 (citing Kirkland and Bell, but

declining to apply issue preclusion because the debtor did not

substantially participate in the prior proceeding). 

Further, as Kirkland noted, Arizona courts follow the

approach taken in the Restatement (Second) of Judgments § 27

(1982). See e.g., Airfreight Expt. Ltd v. Evergreen Air Center,

Inc., 158 P.3d 232, 237 (Ariz. App. Div. 2 2007); Special Fund

Div., Industrial Com’n v. Tabor, 32 P.3d 14, 17 (Ariz. App. Div 1

2001). Chaney quoted Comment d. to this Restatement as follows:

“When an issue is properly raised by the pleadings or otherwise,

and is submitted for determination, and is determined, the issue

is actually litigated.” Chaney, 716 P.2d at 30. Comment e. to

§ 27 of the Restatement (Second) of Judgments provides: “It is

true that it is sometimes difficult to determine whether an issue

was actually litigated; even if it was not litigated, the party’s

reasons for not litigating the prior action may be such that

preclusion would be appropriate.”
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As with the cases above, the Francises substantially

participated in the State Court Action. Any failure to litigate

was due to the Francises’ voluntary tactical decision, the

consequences of which they must now face. A finding that the

issues were actually litigated conforms with Comments d. and e.

of the Restatement and is in accord with the principle that a

refusal to testify in a civil proceeding is done at one’s own

peril and does not preclude an adverse inference. Baxter v.

Palmigiano, 425 U.S. 308, 318 (1976). 

Finally, though Arizona courts have not specifically

addressed whether an issue is actually litigated when a party

invokes the Fifth Amendment privilege, our position comports with

the majority view in other jurisdictions that such party has had

a full and fair opportunity to litigate for issue preclusion

purposes. See e.g., Manty v. Brown (In re Brown), 427 B.R. 715,

719, 721-22 (D. Minn. 2010); FTC v. Abeyta (In re Abeyta),

387 B.R. 846, 849, 852-853 (Bankr. D. N.M. 2008); AGP Grain

Cooperative v. White (In re White), 315 B.R. 741, 745, 747-49

(Bankr. D. Neb. 2004); Miles v. Rutledge (In re Rutledge),

245 B.R. 678, 683 (Bankr. D. Kan 1999).

Issue was essential

The State Court Judgment explicitly found for United on the

fraud and conversion claims and stated:

7. Andrew Francis made representations

to the Trust by causing his company,

Medical Management Strategies, L.L.C.P., 

to submit false claims to the Trust for

medical services purportedly provided by

HeartGen Centers, Inc. to Trust

beneficiaries; 
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8. Andrew Francis’s representations were

false because the purported medical

services set forth in the claims were

never performed by HeartGen; 

9. Andrew Francis’s representations were

material in influencing the Trust to pay

the false claims; 

10. Andrew Francis knew that the

representations were false; 

11. Andrew Francis intended that the

Trust would act upon the representations

in the manner reasonably contemplated by

Andrew Francis, i.e., by paying the

false claims; 

12. The Trust did not know that the

representations were false; 

13. The Trust relied on the truth of the

representations; 

14. The Trust’s reliance was reasonable

and justified under the circumstances; 

15. As a result, the Trust was damaged; 

16. In making the representations,

Andrew Francis was acting for the

benefit of his marital community. 

As indicated by the State Court Judgment, the requirements

of fraud were necessarily determined and essential to the

judgment against Andrew. 

As noted, though not raised by Appellants until oral

argument, the findings of fact in the State Court Judgment as to

fraud were made only against Andrew. Generally this Panel will

not review an issue not raised below unless necessary to prevent

manifest injustice. Komatsu, Ltd. V. States S.S. Co., 674 F.2d

806, 810 (9th Cir. 1982). In this case, allowing a

nondischargeability judgment against Anne to stand, when there
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were no findings that she participated in the fraud, would

constitute a manifest injustice.

This Panel notes that the award in the State Court Judgment

was based on both fraud and conversion claims. However, the

State Court Complaint expressly sought damages of at least

$118,180.54 only under the fraud claim and in the prayer for

relief. As such, it is clear the damages awarded by the State

Court Judgment can be attributed to the fraud claim. 

As the doctrine of issue preclusion was properly applied to

Andrew, the elements to declare a debt nondischargeable under

§ 523(a)(2)(A) have been shown and are not subject to material

dispute. Accordingly, summary judgment was appropriate as to

Andrew.

CONCLUSION

For all of the reasons set forth above, we AFFIRM the

bankruptcy court’s judgment declaring the State Court Judgment

nondischargeable pursuant to 11 U.S.C. § 523(a)(2)(A) as to

Andrew Francis. We VACATE the bankruptcy court’s judgment as to

Anne Francis and REMAND for further proceedings.